Portfolio diversification is widely practiced, but rarely discussed or challenged. Consequently, many investors end up disappointed, with portfolios that hold a little bit of everything but fail to be well diversified.
This book introduces a new framework for reviewing and measuring the benefits of effective portfolio diversification. It outlines the major trends in Modern Portfolio Theory and presents the strengths and weaknesses of a range of well-known approaches to portfolio management, including traditional Markowitz diversification and diversification in risk budgeting environments.
Later chapters explore more advanced topics such as diversification using factor models and principal portfolios, as well as approaches to non-linear relationships between assets and non-normal distributions. Finally, the book concludes by addressing the question of when concentration is preferable to diversification.
Featuring a wide selection of references to sources in research and practice, Portfolio Diversification is a crucial addition for anyone looking for a deeper understanding of the complexities of investment and asset management.
1. Portfolio Size, Weights and Entropy-based Diversification.
2. Modern Portfolio Theory and Diversification.
3. Naive Portfolio Diversification.
4. Risk-budgeting and Risk-based Portfolios.
5. Factor Models and Portfolio Diversification.
6. Non-normal Return Distributions, Multi-period Models and Time Diversification.
7. Portfolio Diversification in Practice.
François-Serge Lhabitant is the C.E.O. and C.I.O of Kedge Capital, a Professor of Finance at the EDHEC Business School, and a visiting Professor of Finance at the Hong Kong University of Science and Technology.
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